Financial deepening and economic growth in Saudi Arabia

Abstract

This article draws on the authors’ previously published work. It aims to examine the relationship between financial deepening and economic growth in one of the major emerging economies, namely Saudi Arabia. Using time series data from 1970 to 2010, the study employs the autoregressive distributed lag approach to co-integration. The financial depth or size of the financial intermediaries’ sector is measured by the monetisation ratio (M2/GDP). On the one hand, the results show a positive and statistically significant long-run relationship between financial deepening, as measured by M2/GDP, and economic growth, as measured by gross domestic product (GDP) per capita growth. On the other hand, there is no evidence of the short-run dynamic bidirectional relationship between the variables. By and large, the result supports the supply-leading hypothesis that financial deepening spurs economic growth in the …